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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q

(Mark One)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____ to _____

Commission file number 000 - 26728

Talk America Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)
23-2827736
(I.R.S. Employer Identification No.)

12020 Sunrise Valley Drive, Suite 250, Reston, Virginia
(Address of principal executive offices)
20191
(Zip Code)

(703) 391-7500
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X   No____

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes X   No____

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

26,978,275 shares of Common Stock, par value of $0.01 per share, were issued and outstanding as of November 2, 2004.

 
 




TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES

Index

 
Page
   
PART I - FINANCIAL INFORMATION
  
   
Item 1. Consolidated Financial Statements
  
   
Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2004 and 2003 (unaudited)
2
   
Consolidated Balance Sheets - September 30, 2004 and December 31, 2003 (unaudited)
3
   
Consolidated Statements of Stockholders' Equity - Nine Months Ended September 30, 2004 (unaudited)
4
   
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2004 and 2003 (unaudited)
5
   
Notes to Consolidated Financial Statements (unaudited)
6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
   
Item 3. Quantitative and Qualitative Disclosure About Market Risk
18
   
Item 4. Controls and Procedures
18
   
PART II - OTHER INFORMATION
  
   
Item 6. Exhibits
19
   
   



 
1
 





TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)


   
Three Months Ended September 30,
  
Nine Months Ended September 30,
  
   
2004
  
2003
  
2004
  
2003
  
                           
Revenue
  
$
120,537
  
$
99,929
  
$
344,739
  
$
281,520
  
                           
Costs and expenses:
                          
Network and line costs, excluding depreciation and amortization (see below)
    
60,251
    
46,033
    
170,057
    
133,185
  
General and administrative expenses
    
15,934
    
14,236
   
46,987
    
39,664
  
Provision for doubtful accounts
    
5,728
    
3,444
    
14,054
    
8,561
  
Sales and marketing expenses
    
19,318
    
14,146
    
55,806
    
35,146
  
Depreciation and amortization
    
5,442
    
4,450
    
15,895
    
13,138
  
Total costs and expenses
    
106,673
    
82,309
    
302,799
    
229,694
  
                           
Operating income
    
13,864
    
17,620
    
41,940
    
51,826
  
Other income (expense):
                          
Interest income
    
61
    
42
    
204
    
337
  
Interest expense
    
561
    
(1,560
)
  
(698
)
  
(6,066
)
Other income, net
    
--
    
4
    
--
    
2,469
  
Income before provision for income taxes
    
14,486
    
16,106
    
41,446
    
48,566
  
Provision (benefit) for income taxes
    
5,339
    
(35,460
)
  
15,395
    
(22,801
)
                           
Net income
  
$
9,147
  
$
51,566
  
$
26,051
  
$
71,367
  
                           
Income per share - Basic:
                          
Net income per share
 
$
0.34
  
$
1.96
  
$
0.97
  
$
2.71
  
                           
Weighted average common shares outstanding
   
26,974
    
26,367
    
26,799
    
26,325
  
                           
Income per share - Diluted:
                          
Net income per share
 
$
0.32
  
$
1.74
  
$
0.91
  
$
2.45
  
                           
Weighted average common and common equivalent shares outstanding
   
28,212
    
29,761
    
28,482
    
29,337
  
 
 
See accompanying notes to consolidated financial statements.

 
2
 



TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
(Unaudited)


   
September 30, 2004
  
December 31, 2003
  
               
               
Assets
              
Current assets:
              
Cash and cash equivalents
 
$
29,354
  
$
35,242
  
Accounts receivable, trade (net of allowance for uncollectible accounts of $14,304 and $9,414 at September 30, 2004 and December 31, 2003, respectively)
   
48,876
    
40,321
  
Deferred income taxes
    
27,723
    
24,605
  
Prepaid expenses and other current assets
   
7,967
    
5,427
  
Total current assets
   
113,920
    
105,595
  
               
Property and equipment, net
   
66,643
    
68,069
  
Goodwill
    
19,503
    
19,503
  
Intangibles, net
    
2,533
    
4,666
  
Deferred income taxes
    
24,733
    
40,543
  
Other assets
   
8,499
    
7,547
  
   
$
235,831
  
$
245,923
  
               
Liabilities and Stockholders’ Equity
              
Current liabilities:
              
Accounts payable
 
$
43,678
  
$
35,296
  
Sales, use and excise taxes
   
14,596
    
14,551
  
Deferred revenue
   
15,588
    
10,873
  
Current portion of long-term debt
    
3,188
    
16,806
  
Accrued compensation
    
4,658
    
9,888
  
Other current liabilities
    
5,069
    
7,027
  
Total current liabilities
   
86,777
    
94,441
  
               
Long-term debt
    
2,352
    
31,791
  
               
Deferred income taxes
    
19,507
    
19,904
  
               
Commitments and contingencies